On Feb. 17 The Heights published a column by Bill Schrecker titled "Senior and disability advocate weighs in on Social Security," which was a response to a column I wrote, "Reforming the Third Rail." In it, he argues against President Bush's proposed personal retirement accounts on the basis that Social Security "will not be bankrupt in 2042," that the cost of creating retirement accounts "has been estimated as high as $2 trillion," and that "the cost of maintaining private accounts is 20 times higher than the current cost to administer the privatized program."
There is a legitimate argument against President Bush's proposal; but to oppose it based on unfounded, unreferenced sources, and to suggest that "the situation is not the imminent 'crisis' the president has repeatedly described," is misleading and false.
I would like to address the points that Mr. Schrecker brought up. First, he states that Social Security "will not be bankrupt in 2042." This statement is not backed up by what the facts suggest. The 2004 Annual Report of the Social Security Trustees says otherwise; "When today's young workers begin to retire in 2042, the system will be exhausted and bankrupt."
Mr. Schrecker then argues that the costs of strengthening Social Security to include personal retirement accounts "has been estimated as high as $2 trillion," which "could not be done by a government that currently owes more than $7.6 trillion in debt." I'm not sure where he found that it would cost "$2 trillion"; in the president's report, "Strengthening Social Security for the 21st Century," it states that, "the Office of Management and Budget estimates that the President's personal retirement account proposal will require transition financing of $664 billion over the next ten years ($754 billion including interest)."
The 2004 "Report of the Social Security Trustees" has some more interesting figures to ponder. The report concludes that "as of 2004, the cost of doing nothing to fix our Social Security system had hit an estimated $10.4 trillion ... [and] every year we wait costs an additional $600 billion," and, "today's 30-year-old worker can expect a 27 percent benefit cut from the current system when he or she reaches normal retirement age."
It is true that creating personal retirement accounts would increase the debt. The Wall Street Journal notes, however, "borrowing would merely be an acknowledgment of liabilities everyone knows are already there." In other words, borrowing money now is simply an acknowledgement of the future unfunded liabilities that are inherent in the system. Financing a reform now, before the Social Security system is bankrupt, greatly reduces the debt that would be incurred if the government chose to do nothing.
As for Mr. Schrecker's last point that "the cost of maintaining private accounts is 20 times higher than the current cost to administer the privatized program," I can only respond that personal retirement accounts do not add to the total costs that Social Security faces. Again, I am not sure how Mr. Schrecker came by this information. Funding personal retirement accounts, to quote the president's report, "effectively pre-fund Social Security benefits already promised to today's workers and do not represent a net increase in Federal obligations. The obligation to pay Social Security benefits is already there. While personal retirement accounts affect the timing of these costs, they do not add to the total amount obligated through Social Security."
Finally, he argues that to shore up Social Security, instead of creating personal retirement accounts or indexing benefits to inflation rather than wages, government should remove the $90,000 cap on payroll taxes. His logic is that it would, "make Social Security solvent up to 17 percent in 75 years ... Ironically, persons who make nearly six-digit figures do not rely solely on Social Security, in contrast to low-income seniors and persons with disabilities."
This is an awful idea. It would effectively raise taxes and reverse the tax cuts passed earlier in Bush's term.
A new tax cap of $150,000 would increase the combined employer-employee tax burden by roughly $7,400, according to Americans for Tax Reform. The Heritage Foundation estimates that raising the cap would directly increase taxes for 7 million middle-class families.
Larry Kudlow, a prominent economist and co-host of CNBC's Kudlow & Kramer, weighs in that "economists have long acknowledged that the Social Security tax is a direct levy on employment, increasing the wedge between work effort and reward and making new jobs more costly. Any hike in the wage tax cap would most significantly impact small-business owners and the self-employed - the most dynamic growth sector for job creation. Should the combined marginal tax rate on personal income and Social Security wages increase significantly, both economic and job growth would be greatly deterred."
In a Feb. 20 editorial, The Wall Street Journal also chimes in that, "The earnings cap for Social Security contributions is already indexed to grow with average wages - that is, faster than general inflation ... it has increased very rapidly since the 1970s, its current level being double what it was in 1988. Annual tax increases are already planned from here to eternity."
Mr. Schrecker also implies that removing the cap on payroll taxes would only affect "persons who make nearly six-digit figures ... in contrast to low-income seniors and persons with disabilities." The Wall Street Journal has an answer to that assumption: "An income of $90,000 - even $150,000 - is hardly rich if you're trying to raise a family in many areas of this country. Lifting the cap amounts to a whopping 12.4-percentage-point marginal tax rate increase on middle-class households, as well as on small-business owners who don't even get to enjoy the fiction that their employer is paying half."
In response to Bill Schrecker's Feb. 17 column, I am in favor of strengthening Social Security in the manner that President Bush has proposed because I believe it is the most responsible way to ensure that Social Security is around for those who need it most: the poor and forgotten members of our society.
Kevin Boland is a Heights columnist. His columns appear regularly in the Opinions section.
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